Bubbles update

Courtesy of Fumiko (doraemon), via Wikipedia.

Futher to my May post on bubbles, Jim Chanos is still a strong China Bear [businessspectator.com.au]. There are plenty who don't agree, like Aussie journalist Michael Pascoe, who paints markedly different China picture in his recent SMH piece.

With the Aussie dollar approaching parity with the Greenback, I really don't know who's right in this debate anymore. But it sure is a fascinating ride!

TIME's 100 best English-Language novels

TIME critics Lev Grossman and Richard Lacayo pick the 100 best English-Language novels from 1923 to the present.

Hunter Valley Coal Mining

In today's SMH, a story titled Rush to introduce Hunter coal dust monitors:

HARD on the heels of its decision to block the Bickham coalmine, the state government is to suspend planning controls for a series of coal dust monitoring stations in the Hunter region, expediting their construction.

Interesting, but there still seems to be a question mark about whether they're going to be monitoring for the sufficiently small dust particles.

See my earlier post on the Four Corners documentary about Hunter Valley coal mining.

Euro bailout. Now banking risk morphs into geo-political risk

Good explanation about economic troubles in Greece and Europe and the bailout.

http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/05/euro_bailout_now_banking_risk.html

Cool zoom

This is cool - zoom from coffee bean size down to a single atom!

https://learn.genetics.utah.edu/content/cells/scale/

Of Bubbles

Two contrasting views from the Intelligent Investor blog (Doddsville) on whether there is a bubble in Australian real estate prices make for an interesting read:

• Gareth Brown's Jeremy Grantham calls Australian property market “a bubble”
• James Greenhalgh's follow-up The myth of the house price bubble

Shiller's Irrational Exuberance is great book on bubbles. Personally, I don't think Australia is quite in a bubble situation yet with housing. I tend to agree that as long as there is an under-supply of housing, it's quite unlikely that house prices will crash. On the other hand, the recent history of housing in the United States shows that under-supply in housing can be turned around pretty quickly so there's always reason to be cautious.

China on the other hand, strikes me as being in a real estate bubble. I'm in the Chanos camp there. I've seen the videos of  New South China Mall and Ordos and they are rather scary! Unfortunately, I suspect it will be a very rough ride out of that particular situation, once things start to collapse. I don't think anyone knows exactly when that will be, but more people seem to be of that view: Chanos, Andy Xie, Jack Rodman and others.

Update: Interesting counterpoint on China on Scott Sumner's blog:

I’d say if you are predicting a crash based on construction being 60% of GDP, and it’s actually only about 10%, that’s a big problem.

Hmmm, good point!

The Disasters of War

The thought came to me that these videos [youtube.com] from Iraq may be the contemporary equivalent of Goya's prints [wikipedia.com].
Image Wikipedia

On Soft Paternalism

An interesting little debate on soft paternalism in Cato Unbound.

Glen Whitman (CSU) writes the lead piece The Rise of the New Maternalism. This is followed by three responses and rejoinders.

• Richard Thaler and Whitman's rejoinder.
• Jonathan Klick and reply.
• Shane Frederick and reply.

Rent controls in Australia - would they really help the housing affordability crisis?

An Onymous Lefty thinks rent controls are a good idea and would help with the shortage of affordable housing in Australia's major cities. If we are going to have to go down this path, I think tax-payer funded subsidies might be the better way to go.

The further evidence is apparently that 'Andrew Bolt and his readers strongly dislike rent controls.' Generally, a tongue-in-cheek argument that makes for a good rule of thumb. But in this case, I prefer the earlier post about the media laying the blame for expensive housing on migrants.

I'm far from convinced that rent controls are a good answer to housing affordability issues. After all, they're the ECON101 textbook case study for a bad type of market intervention and serious misallocations of resources. Ben Bernanke's didn't like them in his Principles of Microeconomics. The relevant pages are in limited preview in Google Books if you search for rent control. Bernanke and Frank do a pretty good job of pointing out the numerous failings that rent controls have. Here's their classic supply and demand curve for good measure:

 

While there's at least some economic argument that can be made for rent controls, it seems most economists agree that the market inefficiencies of rent controls are unlikely to outweigh the problems. Paul Krugman certainly had his doubts. So I'm a little surprised that this argument is coming from Terry Burke, an academic who holds a B Ec (Hons) and Masters of Economics from Monash University.

We should recall that rent controls have actually been tried in Australia (in both Sydney and Canberra) and don't have a particularly flashy record. They were abandoned first in Sydney and then in Canberra. Robert Albon from the faculty of economics at the ANU carried out an analysis of the effects in Canberra at the time and concluded the following:

Redistribution by rent control was both haphazard and costly. Costs were in the form of foregone surplus and administration. Tenants in Canberra received. a benefit while those in Queanbeyan suffered losses. From an efficiency viewpoint, a subsidy is always preferable to a price restriction as it does not create a discincentive to supply. Such a subsidy would, of course, create an administrative cost and would have to be financed from taxation. It is easier to identify and benefit the most needy with a subsidy, rather than with blanket rent control. The most needy probably ended up paying higher rents in Queanbeyan. Distorted signals in the past are now imposing a cost on Queanbeyan landlords. In a very real sense, Queanbeyan has borne, and is bearing, the costs of Canberra’s rent control. Canberra’s rent control also imposed other costs. Tenants and potential tenants endured search costs. ‘Groups’ and young families were discriminated against by risk-averse, maximizing landlords. All in all, Canberra’s experience with rent control has verified the expectations suggested by simple neoclassical andysis. Further, it could not be said that the stated objectives of the legislation were realized.

 Or, as the RBA puts it in this discussion paper:

These policies can have unintended consequences, both in the housing market directly and in terms of macroeconomic outcomes. Rent controls and other measures designed to support tenants can sometimes work to their disadvantage, as they raise required rental returns to investors and restrict supply. For example, the focus on ‘conforming’ rental property in Canada seems to have resulted in relatively high costs of renting compared with owning and very low rental vacancy rates (Traclet 2005), but very little new supply of apartments (Crook 1998).

Beauty and the Bike

A lovely trailer for a 2009 documentary [youtube.com], Beauty and the Bike. The film is about schoolgirls cycling in Darlington, UK and makes a comparison with Bremen in Germany. Some further comment here [hembrow.blogspot.com]. The site for the film.

via Velo Vogue.